A quick primer on the last eight years.
By Dwyer Gunn
(Photo: Brendan Smialowski/AFP/Getty Images)
On Friday, the Bureau of Labor Statistics released the regional and state breakdown of its October jobs report (the national report, which put unemployment at 4.9 percent, was released earlier in the month).
In general, the news was good: Between October of 2015 and October of 2016, unemployment decreased in seven states, increased in five states, and was stable elsewhere. During the same period, 31 states (and Washington, D.C.) added jobs, two states lost jobs, and 17 states remained stable.
(Map: Economic Policy Institute)
The chart to the left, courtesy of the Economic Policy Institute, a liberal think tank, illustrates how state unemployment rates compare to pre-Recession levels.
One of the great ironies of the 2016 presidential campaign is that the United States is actually in much better shape economically than it was when President Barack Obama took office in 2009 in the midst of a disastrous financial crisis and deep recession. Earlier this year, after an extended period of wage stagnation for most American workers, the Census Bureau reported that real household income increased by 5.2 percent in 2015, the first increase on record since 2007.
But the Census Bureau report also highlighted a grimmer finding: Most Americans, particularly low- and middle-income Americans, still haven’t reached pre-Recession income levels.
As the Obama administration winds to a close and a new administration takes office—one promising to deliver big increases in gross domestic product (GDP) growth and employment—we thought it was time to take stock of both the country’s long, slow recovery and the government interventions that sparked that recovery (or didn’t, depending on who you ask).
(Note: this timeline is an extremely consolidated version of events and focuses primarily on actions taken by the Bush and Obama administrations; for a more detailed discussion, see this comprehensive timeline from the St. Louis Fed.)
The bursting of the housing bubble leads to skyrocketing default rates on so-called subprime mortgages (high-interest loans given to borrowers with less-than-stellar credit). A string of subprime lenders declare bankruptcy in 2007. Ratings agencies begin to downgrade subprime mortgage lenders, as well as bonds and securities backed by subprime mortgages.
Notwithstanding the turmoil in the financial sector, unemployment rates in the U.S. actually remain at or below 5 percent for all of 2007, and the U.S. doesn’t officially enter a recession until December of 2007.
The meltdown picks up steam. Bank of America announces plans to acquire Countrywide Financial, a struggling mortgage lender, and J.P. Morgan announces plans to purchase Bear Stearns. The Federal Reserve takes a number of steps to stabilize the financial system. Meanwhile:
- In February, Congress passes the Economic Stimulus Act of 2008, which largely consists of about $120 billion of tax rebates for Americans.
- In July, the U.S. passes the Housing and Economic Recovery Act of 2008, which establishes the Federal Housing Financing Agency and is intended to shore up government-sponsored lenders Freddie Mac and Fannie Mae.
- In September, with the presidential election campaign in full swing, the financial system teeters on the edge of total collapse. On September 7th, the newly established FHFA takes over Freddie Mac and Fannie Mae. On September 15th, Bank of America announces plans to purchase Merrill Lynch; Lehman Brothers files for bankruptcy. On September 16th, American International Group accepts a massive government bailout.
- In October, Congress passes the Emergency Economic Stabilization Act of 2008, which grants the Department of the Treasury the authority to provide up to $250 billion of capital to troubled financial institutions (under the Troubled Assets Relief Program, i.e. TARP). Throughout the remainder of 2008, the Treasury purchases capital in a number of financial institutions under the TARP program.
- On November 4th, 2008, Obama and Joe Biden defeat John McCain and Sarah Palin in the presidential election. On November 18th, Ford, General Motors, and Chrysler testify before Congress requesting that TARP funds be made available to American automakers.
- On December 19th, the Department of the Treasury authorizes $13.4 billion in loans for General Motors and $4.0 billion for Chrysler.
Unemployment in the U.S. continues to rise throughout the year. By December of 2008, the U.S. unemployment rate is at 7.3 percent. Real GDP declines by 0.8 percent.
On February 17th, the U.S. passes the American Recovery and Reinvestment Act of 2009, an $800 billion economic stimulus package consisting of direct government spending and tax cuts. The stimulus remains controversial — many liberal economists and politicians argue it was too small; conservatives say it was ineffective and a waste of government spending. Most economists, however, can agree that it at least helped stop the bleeding. On February 18th, Obama announces the creation of the Homeowner Affordability and Stability Plan, which allows for refinancing of certain Fannie Mae and Freddie Mac mortgages.
In March, the U.S. government takes over GM and Chrysler, effectively “bailing out” the auto industry. In May, the U.S. passes the Helping Families Save Their Homes Act, intended to reduce foreclosures. Throughout 2009, the Department of the Treasury continues to purchase assets under TARP.
Unemployment continues to rise throughout most of 2009, peaking at 10 percent in October of 2009. In December of 2009, unemployment falls to 9.9 percent. The economy’s official “trough” (and the end of the recession) occurs in June of 2009, according to the National Bureau of Economic Research.
In July of 2010, Obama signs the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is designed to prevent another financial meltdown.
In December of 2010, the U.S. passes an $858 billion package of tax cuts. Unemployment remains above 9 percent for all of 2010, before slowly beginning to inch down in 2011.
(Chart: Bureau of Labor Statistics)
The chart to the left, from the Bureau of Labor Statistics, illustrates the slow, painful economic recovery that took place over a period of several years, between 2008 and 2016. It’s not until October of 2014 that the unemployment rate finally dips below 6 percent, returning to 2008 levels.
The financial crisis of 2007–08 and ensuing recession were, without a doubt, the greatest economic challenges this country has faced since the Great Depression. Perhaps not surprisingly given the extent of the crisis, the recovery has been slow, and the effects of the crisis still linger, no doubt compounded by additional economic forces — automation, globalization, and inequality, to name just a few. But it’s worth remembering, as a new administration gears up for tax cuts and infrastructure spending, just how far we’ve come over the last eight years.